Shenwan Hongyuan has released a research report stating that the baijiu sector's revenue and profit remained under pressure in 26Q3, with fundamental pressures accelerating their release and financial statement pressures accelerating their clearing. The firm believes that the sector's bottoming characteristics have been verified: 1) the time and magnitude of the sector's adjustment have been relatively sufficient; 2) share prices have largely reflected pessimistic market expectations; 3) the valuation attractiveness of quality individual stocks has notably increased, dividend yields have reached relatively high levels, and leading enterprises have the capability to maintain stable growth in revenue and profit. From the financial statement perspective, most enterprises will continue to release pressure in 2026, but the pace and magnitude of adjustment differ, meaning each enterprise's earnings reversal inflection point and elasticity will also differ.

The firm expects that most leading enterprises will complete financial statement clearing in 2026, with pressure fully released, and are expected to return to a growth cycle in 2027. Looking ahead to 2027, as the industry stabilizes, different enterprises will exhibit different alpha during the stabilization and upward process, resulting in significantly different earnings elasticity and valuation elasticity.

The main views of Shenwan Hongyuan are as follows:

Fundamental Analysis: 26Q3 Revenue and Profit Declined Year-over-Year, Leading Enterprises Ushering in Earnings Reversal

1. The baijiu sector's revenue and profit continued to face pressure in 26Q3, with sub-premium segment profitability beginning to recover, and some regional baijiu companies' revenue gradually turning positive. 26Q3 operating revenue was 67.92 billion yuan, down 9.76% year-over-year, and net profit attributable to parent company was 24.59 billion yuan, down 12.32% year-over-year. Revenue growth ranked as follows: national premium baijiu > sub-premium > regional baijiu, while net profit attributable to parent company growth ranked as: sub-premium > national premium baijiu > regional baijiu.

2. The baijiu sector's profitability diverged in 26Q3, with the sub-premium segment's net margin improving while regional baijiu's net margin decline remained relatively large. For the first three quarters of 2026, the baijiu sector's net margin was 38.7%, down 0.8 percentage points year-over-year, mainly affected by declining gross margin and rising sales expense ratio. In 26Q3, the net margin was 37.3%, down 1.0 percentage point year-over-year; gross margin rose 0.3 percentage points, but the sales expense ratio increased 1.6 percentage points, keeping net margin under pressure.

3. At the end of 26Q3, the baijiu sector's advance receipts were 55.86 billion yuan, a decrease of 3.81 billion yuan compared to the end of 26Q2, versus an increase of 2.15 billion yuan in the same period last year. Due to channel changes, national premium baijiu companies saw a sequential decline in advance receipts, while sub-premium and regional baijiu companies saw sequential growth, with the latter two showing improvement in sequential changes compared to the same period last year.

4. In 26Q3, the baijiu sector's net operating cash flow was 27.86 billion yuan, up 30.2% year-over-year; cash received from sales of goods and rendering of services was 76.81 billion yuan, down 6.2% year-over-year, a smaller decline than the revenue decline.

Valuation Analysis

From a valuation perspective, the sector's current valuation remains below the historical median. As of October 30, 2026, the baijiu sector's absolute PE was 21.5x, below the historical daily average of 27.1x since 2011. The baijiu sector's relative PE multiple (relative to the Shanghai Composite Index) was 1.41x, below the historical daily average of 1.96x since 2011. National baijiu companies such as Kweichow Moutai have 2027 valuations basically in the 15-20x range.

The firm believes that the industry is bottoming out during the downturn in 2026, and starting from 26Q3, some enterprises' fundamentals have already begun to reverse and return to a growth cycle. Most companies' fundamentals will bottom out in 2026, with financial statement performance at the bottom of the downward cycle. The industry is expected to stabilize in 2027, with leading baijiu enterprises all expected to return to a growth cycle, and leading enterprises are expected to welcome a double boost in valuation and earnings.

Risk Warnings: Economic downturn affecting overall baijiu demand; food safety issues.